GREGORIO V. TONGKO, vs MANUFACTURERS LIFE INSURANCE CO., INC. and RENATO A. VERGEL DE DIOS, G.R. No.

167622 This resolves the Motion for Reconsideration[1] dated December 3, 2008 filed by respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and separation pay for illegal dismissal. The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are repeated, simply for purposes of clarity. The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July 1, 1977, under a Career Agents Agreement (Agreement) that provided: It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent. a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt issued by the Company directly to the policyholder. The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous failure to exercise its right under any provision of this Agreement. Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party fifteen (15) days notice in writing.[2] Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard of knowledge and competency in the sale of Manulifes products, satisfactory to Manulife and sufficient to meet the volume of the new business, required by his Production Club membership.[3] The second phase started in 1983 when Tongko was named Unit Manager in Manulifes Sales Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.[4] Tongkos gross earnings consisted of commissions, persistency income, and management overrides. Since the beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross business income and deducted his business expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on Tongkos earnings.[5] In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote: The first step to transforming Manulife into a big league player has been very clear to increase the number of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined the organization. Since then, however, substantial changes have taken place in the organization, as these have been influenced by developments both from within and without the company. The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers meeting earlier last month when Kevin OConnor, SVP-Agency, took to the floor to determine from our senior agency leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had presented information where evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.

While discussions, in general, were positive other than for certain comments from your end which were perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-on-one), it was not clear that we were proceeding in the same direction. Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no basis. With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your management team, including you, to clear the air, so to speak. This note is intended to confirm the items that were discussed at the said Metro North Regions Sales Managers meeting held at the 7/F Conference room last 18 October. Issue # 2: Some Managers are unhappy with their earnings and would want to revert to the position of agents. This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table before the rest of your Regions Sales Managers to verify its validity. As you must have noted, no Sales Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a source of the same, an allegation that Malou herself denied at our meeting and in your very presence. This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency development objectives! Issue # 3: Sales Managers are doing what the company asks them to do but, in the process, they earn less. All the above notwithstanding, we had your own records checked and we found that you made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about making less money did not refer to you but the way you argued this point had us almost believing that you were spouting the gospel of truth when you were not. x x x All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction that we have been discussing these past few weeks, i.e., Manulifes goal to become a major agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency growth. I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the following changes in the interim: 1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you feel may not be your cup of tea. You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The above could solve this problem. 2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in autonomous fashion. x x x I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely responsible for meeting the objectives of these remaining groups. The above changes can end at this point and they need not go any further. This, however, is entirely dependent upon you. But you have to understand that meeting corporate objectives by everyone is

primary and will not be compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.[6] Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongkos services: It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between yourself and SVP Kevin OConnor, some of them with me, as well as group meetings with your Sales Managers, all these efforts have failed in helping you align your directions with Managements avowed agency growth policy. On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.[7] Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC) Arbitration Branch. He essentially alleged despite the clear terms of the letter terminating his Agency Agreement that he was Manulifes employee before he was illegally dismissed.[8] Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the question of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the need to determine the validity of the termination of the relationship. A. Tongkos Case for Employment Relationship Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00, regardless of production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager, he was given a travel and entertainment allowance of P36,000.00 per year in addition to his overriding commissions; he was tasked with numerous administrative functions and supervisory authority over Manulifes employees, aside from merely selling policies and recruiting agents for Manulife; and he recommended and recruited insurance agents subject to vetting and approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices when he was not in the field at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City for which he never paid any rental. Manulife provided the office equipment he used, including tables, chairs, computers and printers (and even office stationery), and paid for the electricity, water and telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three codes of conduct.[9] B. Manulifes Case Agency Relationship with Tongko Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales made by agents under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from all commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as suchi.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a business is entitled. Manulife asserts that the labor tribunals have no jurisdiction over Tongkos claim as he was not its employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.[10] The Conflicting Rulings of the Lower Tribunals The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC reversed the labor arbiters decision on appeal; it found the existence of an employer-employee relationship and concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiters decision that no employeremployee relationship existed between Tongko and Manulife. Our Decision of November 7, 2008

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed between Tongko and Manulife. We concluded that Tongko is Manulifes employee for the following reasons: 1. Our ruling in the first Insular[11] case did not foreclose the possibility of an insurance agent becoming an employee of an insurance company; if evidence exists showing that the company promulgated rules or regulations that effectively controlled or restricted an insurance agents choice of methods or the methods themselves in selling insurance, an employer-employee relationship would be present. The determination of the existence of an employer-employee relationship is thus on a case-tocase basis depending on the evidence on record. 2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the following indicators: 2.1 Tongko undertook to comply with Manulifes rules, regulations and other requirements, i.e., the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and the Financial Code of Conduct Agreement; 2.2 The various affidavits of Manulifes insurance agents and managers, who occupied similar positions as Tongko, showed that they performed administrative duties that established employment with Manulife;[12] and 2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary means to sell more policies; Tongkos alleged failure to follow this directive led to the termination of his employment with Manulife. The Motion for Reconsideration Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS: 1. The November 7[, 2008] Decision violates Manulifes right to due process by: (a) confining the review only to the issue of control and utterly disregarding all the other issues that had been joined in this case; (b) mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that on control; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material evidence, especially [Tongkos] declaration in his income tax returns that he was a business person or self-employed; and (d) allowing [Tongko] to repudiate his sworn statement in a public document. 2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the legal relationships of agencies to sell but also distributorship and franchising, and ignores the constitutional and policy context of contract law vis--vis labor law. 3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the fourfold test other than the control test, reverses well-settled doctrines of law on employer-employee relationships, and grossly misapplies the control test, by selecting, without basis, a few items of evidence to the exclusion of more material evidence to support its conclusion that there is control. 4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and contravenes through judicial legislation, the constitutional prohibition against impairment of contracts under Article III, Section 10 of the Constitution. 5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and attorneys fees.[13] THE COURTS RULING A. The Insurance and the Civil Codes;the Parties Intent and Established Industry Practices

We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted to Insurance Agents and Brokers and specifically defines the agents and brokers relationship with the insurance company and how they are governed by the Code and regulated by the Insurance Commission. The Insurance Code, of course, does not wholly regulate the agency that it speaks of, as agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws namely, the Insurance Code, the Labor Code and the Civil Code have to be considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship for purposes of selling the insurance the company offers. To forget these other laws is to take a myopic view of the present case and to add to the uncertainties that now exist in considering the legal relationship between the insurance company and its agents. The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship. The Labor Code concept of control has to be compared and distinguished with the control that must necessarily exist in a principal-agent relationship. The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially in cases where the company-representative relationship in the insurance industry is an agency. a. The laws on insurance and agency The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the insurance business. Section 186 of the Insurance Code provides that No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines. Sections 299 and 300 of the Insurance Code on Insurance Agents and Brokers, among other provisions, provide: Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject. The application for an insurance agents license requires a written examination, and the applicant must be of good moral character and must not have been convicted of a crime involving moral turpitude.[14] The insurance agent who collects premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity, and an insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have authorized the agent to receive payment on the companys behalf.[15] Section 361 further prohibits the offer, negotiation, or collection of any amount other than that specified in the policy and this covers any rebate from the premium or any special favor or advantage in the dividends or benefit accruing from the policy. Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the parameters of the authority granted under the license and under the contract with the principal. Other than the need for a license, the agent is limited in the way he offers and negotiates for the sale of the companys insurance products, in his collection activities, and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g., the required volume to continue to qualify as a company agent, rules to check on the parameters on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control

specific to an insurance agency and should not and cannot be read as elements of control that attend an employment relationship governed by the Labor Code. On the other hand, the Civil Code defines an agent as a person [who] binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[16] While this is a very broad definition that on its face may even encompass an employment relationship, the distinctions between agency and employment are sufficiently established by law and jurisprudence. Generally, the determinative element is the control exercised over the one rendering service. The employer controls the employee both in the results and in the means and manner of achieving this result. The principal in an agency relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned task based on the parameters outlined in the pertinent laws. Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the designation by the insurance company. In the present case, the Agreement fully serves as grant of authority to Tongko as Manulifes insurance agent.[17] This agreement is supplemented by the companys agency practices and usages, duly accepted by the agent in carrying out the agency.[18] By authority of the Insurance Code, an insurance agency is for compensation,[19] a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.[20] Other than the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for the execution of the agency.[21] By implication at least under Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same assigned tasks,[22] based necessarily on the specific instructions and directives given to them. With particular relevance to the present case is the provision that In the execution of the agency, the agent shall act in accordance with the instructions of the principal.[23] This provision is pertinent for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil Code which binds the agent to render an account of his transactions to the principal. B. The Cited Case The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and regulations that an agent has to comply with are indicative of an employeremployee relationship.[24] The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations Commission (second Insular case)[25] to support the view that Tongko is Manulifes employee. On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission (AFPMBAI case)[26] to support its allegation that Tongko was not its employee. A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all fours with the present case; the uniqueness of the factual situation of the present case prevents it from being directly and readily cast in the mold of the cited cases. These cited cases are themselves different from one another; this difference underscores the need to read and quote them in the context of their own factual situations.

The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal characterization of a subsequent management contract that superseded the original agency contract between the insurance company and its agent. Carungcong dealt with a subsequent Agreement making Carungcong a New Business Manager that clearly superseded the Agreement designating Carungcong as an agent empowered to solicit applications for insurance. The Grepalife case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents. Thus, after analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that the company practically dictated the manner by which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a determination of the presence of the Labor Code element of control was made on the basis of the stipulations of the subsequent contracts.

In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or document extant and submitted as evidence in the present case is the Agreement a pure agency agreement in the Civil Code context similar to the original contract in the first Insular Life case and the contract in the AFPMBAI case. And while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in the records of the case. Any such contract or agreement, had there been any, could have at the very least provided the bases for properly ascertaining the juridical relationship established between the parties. These critical differences, particularly between the present case and the Grepalife and the second Insular Life cases, should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases. C. Analysis of the Evidence c.1. The Agreement The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties relations until the Agreements termination in 2001. This Agreement stood for more than two decades and, based on the records of the case, was never modified or novated. It assumes primacy because it directly dealt with the nature of the parties relationship up to the very end; moreover, both parties never disputed its authenticity or the accuracy of its terms. By the Agreements express terms, Tongko served as an insurance agent for Manulife, not as an employee. To be sure, the Agreements legal characterization of the nature of the relationship cannot be conclusive and binding on the courts; as the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law that is for the courts to determine. At the same time, though, the characterization the parties gave to their relationship in the Agreement cannot simply be brushed aside because it embodies their intent at the time they entered the Agreement, and they were governed by this understanding throughout their relationship. At the very least, the provision on the absence of employer-employee relationship between the parties can be an aid in considering the Agreement and its implementation, and in appreciating the other evidence on record. The parties legal characterization of their intent, although not conclusive, is critical in this case because this intent is not illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this perspective, the provisions of the Insurance Code cannot be disregarded as this Code (as heretofore already noted) expressly envisions a principal-agent relationship between the insurance company and the insurance agent in the sale of insurance to the public. For this reason, we can take judicial notice that as a matter of Insurance Code-based business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance. The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided for a principalagent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in accordance with the production-based sales commissions the Insurance Code provides. Significantly, evidence shows that Tongkos role as an insurance agent never changed during his relationship with Manulife. If changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko essentially remained an agent, but moved up in this role through Manulifes recognition that he could use other agents approved by Manulife, but operating under his guidance and in whose commissions he had a share. For want of a better term, Tongko perhaps could be labeled as a lead agent who guided under his wing other Manulife agents similarly tasked with the selling of Manulife insurance. Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if Tongkos compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes of crediting him with his share in the commissions the agents under his wing generated. As an agent who was recruiting and guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko received greater reimbursements for his expenses and was even allowed to use Manulife facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents approved and certified as such by Manulife with the Insurance Commission.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that results from the reading of the Agreement (the only agreement on record in this case) and his continuing role thereunder as sales agent, from the perspective of the Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales Manager. To be sure, this interpretation could have been contradicted if other agreements had been submitted as evidence of the relationship between Manulife and Tongko on the latters expanded undertakings. In the absence of any such evidence, however, this reading based on the available evidence and the applicable insurance and civil law provisions must stand, subject only to objective and evidentiary Labor Code tests on the existence of an employer-employee relationship. In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties relationship should be noted. From 1977 until the termination of the Agreement, Tongkos occupation was to sell Manulifes insurance policies and products. Both parties acquiesced with the terms and conditions of the Agreement. Tongko, for his part, accepted all the benefits flowing from the Agreement, particularly the generous commissions. Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife insurance products since he invariably declared himself a business or self-employed person in his income tax returns. This consistency with, and action made pursuant to the Agreement were pieces of evidence that were never mentioned nor considered in our Decision of November 7, 2008. Had they been considered, they could, at the very least, serve as Tongkos admissions against his interest. Strictly speaking, Tongkos tax returns cannot but be legally significant because he certified under oath the amount he earned as gross business income, claimed business deductions, leading to his net taxable income. This should be evidence of the first order that cannot be brushed aside by a mere denial. Even on a laymans view that is devoid of legal considerations, the extent of his annual income alone renders his claimed employment status doubtful.[27] Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel a legal and equitable concept[28] necessarily must come into play. Tongkos previous admissions in several years of tax returns as an independent agent, as against his belated claim that he was all along an employee, are too diametrically opposed to be simply dismissed or ignored. Interestingly, Justice Velascos dissenting opinion states that Tongko was forced to declare himself a business or self-employed person by Manulifes persistent refusal to recognize him as its employee.[29] Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since no evidence in fact exists on this point in the records of the case. In fact, what the evidence shows is Tongkos full conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn. Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement negated any employment relationship between Tongko and Manulife so that the commissions he earned as a sales agent should not be considered in the determination of the backwages and separation pay that should be given to him. This part of the dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual roles in his relationship with Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an employee in his capacity as a manager. Thus, the dissent concluded that Tongkos backwages should only be with respect to his role as Manulifes manager. The conclusion with respect to Tongkos employment as a manager is, of course, unacceptable for the legal, factual and practical reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of evidentiary support of the conclusion that Manulife exercised control over Tongko in the sense understood in the Labor Code. The legal reason, partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and was thus its employee. The practical reason, on the other hand, is the havoc that the dissents unwarranted conclusion would cause the insurance industry that, by the laws own design, operated along the lines of principal-agent relationship in the sale of insurance. c.2. Other Evidence of Alleged Control A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko during his ascent in Manulifes sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant. This also holds true for Tongkos appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control the agreement or directive relating to Tongkos duties and responsibilities was never introduced as part of the records of the case. The reality is, prior to de Dios letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the

agents under his wing. As discussed below, the alleged directives covered by de Dios letter, heretofore quoted in full, were policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own selling activities. This is the reality that the parties presented evidence consistently tells us.

What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in the sale of insurance. The mere presentation of codes or of rules and regulations, however, is not per se indicative of labor law control as the law and jurisprudence teach us. As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the performance of their respective obligations under the Code, particularly on licenses and their renewals, on the representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies, on the matter of compensation, and on measures to ensure ethical business practice in the industry. The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of labor law control. Foremost among these are the directives that the principal may impose on the agent to achieve the assigned tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The law likewise obligates the agent to render an account; in this sense, the principal may impose on the agent specific instructions on how an account shall be made, particularly on the matter of expenses and reimbursements. To these extents, control can be imposed through rules and regulations without intruding into the labor law concept of control for purposes of employment. From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by the rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do guidelines somehow restrictive of the insurance agents conduct necessarily indicate control as this term is defined in jurisprudence. Guidelines indicative of labor law control, as the first Insular Life case tells us, should not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or restricting the party hired to the use of these means. In fact, results-wise, the principal can impose production quotas and can determine how many agents, with specific territories, ought to be employed to achieve the companys objectives. These are management policy decisions that the labor law element of control cannot reach. Our ruling in these respects in the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown more fully below, Manulifes codes of conduct,[30] all of which do not intrude into the insurance agents means and manner of conducting their sales and only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed between Manulife and Tongko. The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became Manulifes employee. It drew this conclusion from what the other Manulife managers disclosed in their affidavits (i.e., their enumerated administrative and managerial functions) and after comparing these statements with the managers in Grepalife. The dissent compared the control exercised by Manulife over its managers in the present case with the control the managers in the Grepalife case exercised over their employees by presenting the following matrix:[31] Duties of Manulifes Manager Duties of Grepalifes Managers/Supervisors - to render or recommend prospective agents to be licensed, trained and contracted to sell Manulife products and who will be part of my Unit - train understudies for the position of district manager - to coordinate activities of the agents under [the managers] Unit in [the agents] daily, weekly and monthly selling activities, making sure that their respective sales targets are met; - to conduct periodic training sessions for [the] agents to further enhance their sales skill; and

- to assist [the] agents with their sales activities by way of joint fieldwork, consultations and one-on-one evaluation and analysis of particular accounts - properly account, record and document the companys funds, spot-check and audit the work of the zone supervisors, x x x follow up the submission of weekly remittance reports of the debit agents and zone supervisors - direct and supervise the sales activities of the debit agents under him, x x x undertake and discharge the functions of absentee debit agents, spot-check the record of debit agents, and insure proper documentation of sales and collections of debit agents. Aside from these affidavits however, no other evidence exists regarding the effects of Tongkos additional roles in Manulifes sales operations on the contractual relationship between them. To the dissent, Tongkos administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a substantive alteration of Manulifes authority over Tongko and the performance of his end of the relationship with Manulife. We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his additional role as Branch Manager did not lessen his main and dominant role as insurance agent; this role continued to dominate the relations between Tongko and Manulife even after Tongko assumed his leadership role among agents. This conclusion cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife never altered their July 1, 1977 Agreement, a distinction the present case has with the contractual changes made in the second Insular Life case. Tongkos results-based commissions, too, attest to the primacy he gave to his role as insurance sales agent. The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between: the Manulife managers role is to coordinate activities of the agents under the managers Unit in the agents daily, weekly, and monthly selling activities, making sure that their respective sales targets are met. the District Managers duty in Grepalife is to properly account, record, and document the company's funds, spot-check and audit the work of the zone supervisors, conserve the company's business in the district through reinstatements, follow up the submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in good condition, train understudies for the position of district managers, and maintain his quota of sales (the failure of which is a ground for termination). the Zone Supervisors (also in Grepalife) has the duty to direct and supervise the sales activities of the debit agents under him, conserve company property through reinstatements, undertake and discharge the functions of absentee debit agents, spot-check the records of debit agents, and insure proper documentation of sales and collections by the debit agents. These job contents are worlds apart in terms of control. In Grepalife, the details of how to do the job are specified and pre-determined; in the present case, the operative words are the sales target, the methodology being left undefined except to the extent of being coordinative. To be sure, a coordinative standard for a manager cannot be indicative of control; the standard only essentially describes what a Branch Manager is the person in the lead who orchestrates activities within the group. To coordinate, and thereby to lead and to orchestrate, is not so much a matter of control by Manulife; it is simply a statement of a branch managers role in relation with his agents from the point of view of Manulife whose business Tongkos sales group carries. A disturbing note, with respect to the presented affidavits and Tongkos alleged administrative functions, is the selective citation of the portions supportive of an employment relationship and the consequent omission of portions leading to the contrary conclusion. For example, the following portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008, while the other portions suggesting labor law control were highlighted. Specifically, the following portions of the affidavits were not brought out: [32] 1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the computed premiums paid in full on the policies obtained thereat; 1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I see fit; 1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance; 6. I have my own staff that handles the day to day operations of my office; 7. My staff are my own employees and received salaries from me; 9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-employed individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for professionals. These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko. Even de Dios letter is not determinative of control as it indicates the least amount of intrusion into Tongkos exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios directives are merely operational guidelines on how Tongko could align his operations with Manulifes re-directed goal of being a big league player. The method is to expand coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-and-method control as it relates, more than anything else, and is directly relevant, to Manulifes objective of expanded business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An important point to note here is that Tongko was not supervising regular full-time employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife through the same Agreement that he had with Manulife, all the while sharing in these agents commissions through his overrides. This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch Manager used by the parties is really a misnomer given that what is involved is not a specific regular branch of the company but a corps of non-employed agents, defined in terms of covered territory, through which the company sells insurance. Still another point to consider is that Tongko was not even setting policies in the way a regular company manager does; company aims and objectives were simply relayed to him with suggestions on how these objectives can be reached through the expansion of a non-employee sales force. Interestingly, a large part of de Dios letter focused on income, which Manulife demonstrated, in Tongkos case, to be unaffected by the new goal and direction the company had set. Income in insurance agency, of course, is dependent on results, not on the means and manner of selling a matter for Tongko and his agents to determine and an area into which Manulife had not waded. Undeniably, de Dios letter contained a directive to secure a competent assistant at Tongkos own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into Tongkos method of operating and supervising the group of agents within his delineated territory. More than anything else, the directive was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how Tongkos perceived weakness in delivering results could be remedied. It was a solution, with an eye on results, for a consistently underperforming group; its obvious intent was to save Tongko from the result that he then failed to grasp that he could lose even his own status as an agent, as he in fact eventually did. The present case must be distinguished from the second Insular Life case that showed the hallmarks of an employer-employee relationship in the management system established. These were: exclusivity of service, control of assignments and removal of agents under the private respondents unit, and furnishing of company facilities and materials as well as capital described as Unit Development Fund. All these are obviously absent in the present case. If there is a commonality in these cases, it is in the collection of premiums which is a basic authority that can be delegated to agents under the Insurance Code. As previously discussed, what simply happened in Tongkos case was the grant of an expanded sales agency role that recognized him as leader amongst agents in an area that Manulife defined. Whether this consequently resulted in the establishment of an employment relationship can be answered by concrete evidence that corresponds to the following questions: as lead agent, what were Tongkos specific functions and the terms of his additional engagement;

was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he received from the insurance sales he generated; what can be Manulifes basis to terminate his status as lead agent;

can Manulife terminate his role as lead agent separately from his agency contract; and to what extent does Manulife control the means and methods of Tongkos role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed above. But strictly speaking, the questions cannot definitively and concretely be answered through the evidence on record. The concrete evidence required to settle these questions is simply not there, since only the Agreement and the anecdotal affidavits have been marked and submitted as evidence. Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the existence of employer-employee relationship, the Court cannot conclusively find that the relationship exists in the present case, even if such relationship only refers to Tongkos additional functions. While a rough deduction can be made, the answer will not be fully supported by the substantial evidence needed. Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulifes control over Tongkos contractual duties points to the absence of any employeremployee relationship between Tongko and Manulife. In the context of the established evidence, Tongko remained an agent all along; although his subsequent duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic contract yields no evidence of meansand-manner control. This conclusion renders unnecessary any further discussion of the question of whether an agent may simultaneously assume conflicting dual personalities. But to set the record straight, the concept of a single person having the dual role of agent and employee while doing the same task is a novel one in our jurisprudence, which must be viewed with caution especially when it is devoid of any jurisprudential support or precedent. The quoted portions in Justice Carpio-Morales dissent,[33] borrowed from both the Grepalife and the second Insular Life cases, to support the duality approach of the Decision of November 7, 2008, are regrettably far removed from their context i.e., the cases factual situations, the issues they decided and the totality of the rulings in these cases and cannot yield the conclusions that the dissenting opinions drew.

The Grepalife case dealt with the sole issue of whether the Ruiz brothers appointment as zone supervisor and district manager made them employees of Grepalife. Indeed, because of the presence of the element of control in their contract of engagements, they were considered Grepalifes employees. This did not mean, however, that they were simultaneously considered agents as well as employees of Grepalife; the Courts ruling never implied that this situation existed insofar as the Ruiz brothers were concerned. The Courts statement the Insurance Code may govern the licensing requirements and other particular duties of insurance agents, but it does not bar the application of the Labor Code with regard to labor standards and labor relations simply means that when an insurance company has exercised control over its agents so as to make them their employees, the relationship between the parties, which was otherwise one for agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor Code. The reason for this is simple the contract of agency has been transformed into an employer-employee relationship. The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction over an illegal termination dispute involving parties who had two contracts first, an original contract (agency contract), which was undoubtedly one for agency, and another subsequent contract that in turn designated the agent acting unit manager (a management contract). Both the Insular Life and the labor arbiter were one in the position that both were agency contracts. The Court disagreed with this conclusion and held that insofar as the management contract is concerned, the labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor arbiter for further proceedings. We never said in this case though that the insurance agent had effectively assumed dual personalities for the simple reason that the agency contract has been effectively superseded by the management contract. The management contract provided that if the appointment was terminated for any reason other than for cause, the acting unit manager would be reverted to agent status and assigned to any unit. The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the existence of an employer-employee relationship should be resolved in favor of the existence of the relationship.[34] This observation, apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt exists in the implementation and application of

the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation where the claimant clearly failed to substantiate his claim of employment relationship by the quantum of evidence the Labor Code requires. On the dissents last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to state that, as discussed above, the Decision was not supported by the evidence adduced and was not in accordance with controlling jurisprudence. It should, therefore, be reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting opinions are as factually and as legally erroneous as the Decision under reconsideration. In light of these conclusions, the sufficiency of Tongkos failure to comply with the guidelines of de Dios letter, as a ground for termination of Tongkos agency, is a matter that the labor tribunals cannot rule upon in the absence of an employer-employee relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency and contracts. WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7, 2008, GRANT Manulifes motion for reconsideration and, accordingly, DISMISS Tongkos petition. No costs. Tongko vs. The Manufacturers Life Insurance Co., Inc. November 7, 2008 G.R. No. 167622, November 07, 2008 Facts: Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life insurance business. Renato A. Vergel De Dios was, during the period material, its President and Chief Executive Officer. Gregorio V. Tongko started his professional relationship with Manulife on July 1, 1977 by virtue of a Career Agent's Agreement (Agreement) he executed with Manulife. In the Agreement, it is provided that: It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent. The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous failure to exercise its right under any provision of this Agreement. Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party fifteen (15) days notice in writing. In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he became a Branch Manager. As the CA found, Tongko's gross earnings from his work at Manulife, consisting of commissions, persistency income, and management overrides. The problem started sometime in 2001, when Manulife instituted manpower development programs in the regional sales management level. Relative thereto, De Dios addressed a letter dated November 6, 2001 to Tongko regarding an October 18, 2001 Metro North Sales Managers Meeting. Stating that Tongkos Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area. January 1, 2010 Other issues were:"Some Managers are unhappy with their earnings and would want to revert to the position of agents." And "Sales Managers are doing what the company asks them to do but, in the process, they earn less." Tongko was then terminated. Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against Manulife for illegal dismissalIn the Complaint. In a Decision dated April 15, 2004, Labor Arbiter dismissed the complaint for lack of an employer-employee relationship. The NLRC's First Division, while finding an employer-employee relationship between Manulife and Tongko applying the four-fold test, held Manulife liable for illegal dismissal. Thus, Manulife filed an appeal with the CA. Thereafter,

the CA issued the assailed Decision dated March 29, 2005, finding the absence of an employeremployee relationship between the parties and deeming the NLRC with no jurisdiction over the case. Hence, Tongko filed this petition. Issue: 1. WON Tongko was an employee of Manulife 2. WON Tongko was illegally dismissed. Held: 1. Yes In the instant case, Manulife had the power of control over Tongko that would make him its employee. Several factors contribute to this conclusion. In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided that: The Agent hereby agrees to comply with all regulations and requirements of the Company as herein provided as well as maintain a standard of knowledge and competency in the sale of the Company's products which satisfies those set by the Company and sufficiently meets the volume of new business required of Production Club membership.Under this provision, an agent of Manulife must comply with three (3) requirements: (1) compliance with the regulations and requirements of the company; (2) maintenance of a level of knowledge of the company's products that is satisfactory to the company; and (3) compliance with a quota of new businesses. Among the company regulations of Manulife are the different codes of conduct such as the Agent Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement, which demonstrate the power of control exercised by the company over Tongko. The fact that Tongko was obliged to obey and comply with the codes of conduct was not disowned by respondents. Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of Manulife may already be established. Certainly, these requirements controlled the means and methods by which Tongko was to achieve the company's goals. More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform administrative duties that establishes his employment with Manulife. Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a certain number of agents, in addition to his other administrative functions, leads to no other conclusion that he was an employee of Manulife. 2. Yes In its Petition for Certiorari dated January 7, 2005[26] filed before the CA, Manulife argued that even if Tongko is considered as its employee, his employment was validly terminated on the ground of gross and habitual neglect of duties, inefficiency, as well as willful disobedience of the lawful orders of Manulife. Manulife stated: In the instant case, private respondent, despite the written reminder from Mr. De Dios refused to shape up and altogether disregarded the latter's advice resulting in his laggard performance clearly indicative of his willful disobedience of the lawful orders of his superior. As private respondent has patently failed to perform a very fundamental duty, and that is to yield obedience to all reasonable rules, orders and instructions of the Company, as well as gross failure to reach at least minimum quota, the termination of his engagement from Manulife is highly warranted and therefore, there is no illegal dismissal to speak of. It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite a single iota of evidence to support its claims. Manulife did not even point out which order or rule that Tongko disobeyed. More importantly, Manulife did not point out the specific acts that Tongko was guilty of that would constitute gross and habitual neglect of duty or disobedience. Manulife merely cited Tongko's alleged "laggard performance," without substantiating such claim, and equated the same to disobedience and neglect of duty.

Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden of proving the validity of the termination of employment rests on the employer. Failure to discharge this evidential burden would necessarily mean that the dismissal was not justified, and, therefore, illegal. The Labor Code provides that an employer may terminate the services of an employee for just cause and this must be supported by substantial evidence. The settled rule in administrative and quasijudicial proceedings is that proof beyond reasonable doubt is not required in determining the legality of an employer's dismissal of an employee, and not even a preponderance of evidence is necessary as substantial evidence is considered sufficient. Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise. Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife even failed to identify the specific acts by which Tongko's employment was terminated much less support the same with substantial evidence. To repeat, mere conjectures cannot work to deprive employees of their means of livelihood. Thus, it must be concluded that Tongko was illegally dismissed. Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko not being its employee is not entitled to such notices. Since we have ruled that Tongko is its employee, however, Manulife clearly failed to afford Tongko said notices. Thus, on this ground too, Manulife is guilty of illegal dismissal

UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Masagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Masagana. Masagana seasonably filed a motion for the reconsideration of the adverse verdict. Issue: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen. Held:

YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid." A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision that "While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted." By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPBGen, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

Ty v. Filipinas Compaia de Seguros - Insurance Policy 17 SCRA 364 Facts: > Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park, Caloocan. > In 1953, he took personal accident policies from 7 insurance companies (6 defendants), on different dates, effective for 12 mos. > On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A heavy object fell on his hand when he was trying to put out the fire. > From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Natl Orthopedic Hospital for six listed injuries. The attending surgeon certified that these injuries would cause the temporary total disability of Tys left hand.

> Insurance companies refused to pay Tys claim for compensation under the policies by reason of said disability of his left hand. Ty filed a complaint in the municipal court who decided in his favor. > CFI reversed on the ground that under the uniform terms of the policies, partial disability due to loss of either hand of the insured, to be compensable must be the result of amputation. Issue: Whether or not Ty should be indemnified under his accident policies. Held. NO. SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial disability as loss of either hand by amputation through the bones of the wrist, the insured cannot recover under said policies for temporary disability of his left hand caused by the fractures of some fingers. The provision is clear enough to inform the party entering into that contract that the loss to be considered a disability entitled to indemnity, must be severance or amputation of the affected member of the body of the insured.

DIOSDADO C. TY, vs. FILIPINAS COMPAIA DE SEGUROS, The facts of these cases are not controverted: Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, working as mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took Personal Accident Policies from several insurance companies, among which are herein defendants-appellees, on different dates,1 effective for 12 months. During the effectivity of these policies, or on December 24, 1953, a fire broke out in the factory where plaintiff was working. As he was trying to put out said fire with the help of a fire extinguisher, a heavy object fell upon his left hand. Plaintiff received treatment at the National Orthopedic Hospital from December 26, 1953 to February 8, 1954, for the following injuries, to wit:

(1) Fracture, simple, oraximal phalanx, index finger, left; (2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx simple; (3) Fracture, compound, communite phalanx, 4th finger, left; (4) Fracture, simple, middle phalanx, middle finger, left; (5) Lacerated wound, sutured, volar aspect, small finger, left; (6) Fracture, simple, chip, head, 1st phalanx 5th digit, left. which injuries, the attending surgeon certified, would cause temporary total disability of appellant's left hand. As the insurance companies refused to pay his claim for compensation under the policies by reason of the said disability of his left hand, Ty filed motions in the Municipal Court of Manila, which rendered favorable decision. On appeal to the Court of First Instance by the insurance companies, the cases were dismissed on the ground that under the uniform terms of the insurance policies, partial disability of the insured caused by loss of either hand to be compensable, the loss must result in the amputation of that hand. Hence, these appeals by the insured.1wph1.t Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract, uniform in all the cases, which reads: "INDEMNITY FOR TOTAL OR PARTIAL DISABILITY If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and accidental means, and which shall not prove fatal but shall result, independently of all other causes and within sixty (60) days from the occurrence, thereof, in Total or Partial Disability of the Insured, the Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such injury. PARTIAL DISABILITY LOSS OF:Either Hand P650.00 The loss of a hand shall mean the loss, by amputation through the bones of the wrist. Appellant contends that to be entitled to indemnification under the foregoing provision, it is enough that the insured is disabled to such an extent that he cannot substantially perform all acts or duties of the kind necessary in the prosecution of his business. It is argued that what is compensable is the disability and not the amputation of the hand. The definition of what constitutes loss of hand, placed in the contract, according to appellant, consequently, makes the provision ambiguous and calls for the interpretation thereof by this Court. This is not the first time that the proper construction of this provision, which is uniformly carried in personal accident policies, has been questioned. Herein appellant himself has already brought this matter to the attention of this Court in connection with the other accident policies which he took and under which he had tried to collect indemnity, for the identical injury that is the basis of the claims in these cases. And, we had already ruled: While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond the clear and express conditions of the insurance policies, all of which definite partial disability as loss of either hand by amputation through the bones of the wrist. There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was that the physical injuries "caused temporary total disability of plaintiff's left hand." Note that the disability of plaintiff's hand was merely temporary, having been caused by fractures of the index, the middle and the fourth fingers of the left hand. We might add that the agreement contained in the insurance policies is the law between the parties. As the terms of the policies are clear, express and specific that only amputation of the left hand should be considered as a loss thereof, an interpretation that would include the mere fracture or other temporary disability not covered by the policies would certainly be unwarranted. We find no reason to depart from the foregoing ruling on the matter. Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the contract. The provision is clear enough to inform the party entering into that contract that the loss to be considered a disability entitled to indemnity, must be severance or amputation of that affected member from the body of the insured. Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without costs. So ordered.

Great Pacific Life Assurance Company vs. Court of Appeals [GR L-31845, 30 April 1979]; also Mondragon vs. Court of Appeals [GR L-31878]

Facts: On 14 March 1957, Ngo Hing filed an application with the Great Pacific Life Assurance Company for a 20year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting . Mondragon finally type-wrote the data on the application form which was signed by Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt was issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on 30 April 1957, Mondragon received a letter from Pacific Life disapproving the insurance application. The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below 7 years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing. Instead, on 6 May 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment life insurance on the ground that Pacific Life is the only insurance company not selling the 20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage. It was when things were in such state that on 28 May 1957 Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered a decision against Pacific Life and Mondragon, orderig them to solidarily pay Ngo Hing the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P10,000.00 as attorney's fees plus costs of suits. On appeal, the Court of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved Pacific Life and Mondragon from liability on the insurance policy, but ordered the reimbursement to Ngo Hing the amount of P1,077.75, without interest. On reconsideration, however, the appellate court affirmed in toto the decision of the Court of First Instance of Cebu, ordering Pacific Life and Mondragon jointly and severally to pay Ngo Hing. Two petitions for certiorari by way of appeal were filed by Pacific Life and Mondragon. The petitons were consolidated by the Supreme Court in a resolution dated 29 April 1970. Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-

year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

BLUE CROSS HEALTH CARE, INC., vs. NEOMI* and DANILO OLIVARES, respondents. This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA) dated July 29, 2005 and September 21, 2005, respectively, in CA-G.R. SP No. 84163 which affirmed the decision of the Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004 in Civil Case No. 03-1153,4 which in turn reversed the decision of the Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003 in Civil Case No. 80867.5 Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003,6 she paid the amount of P11,117. For the same period, she also availed of the additional service of limitless consultations for an additional amount of P1,000. She paid these amounts in full on October 17, 2002. The application was approved on October 22, 2002. In the health care agreement, ailments due to "preexisting conditions" were excluded from the coverage.7 On November 30, 2002, or barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke and was admitted at the Medical City which was one of the hospitals accredited by petitioner. During her confinement, she underwent several laboratory tests. On December 2, 2002, her attending physician, Dr. Edmundo Saniel,8 informed her that she could be discharged from the hospital. She incurred hospital expenses amounting to P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a letter of authorization in order to settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the submission of a certification from her attending physician that the stroke she suffered was not caused by a pre-existing condition.9 She was discharged from the hospital on December 3, 2002. On December 5, 2002, she demanded that petitioner pay her medical bill. When petitioner still refused, she and her husband, respondent Danilo Olivares, were constrained to settle the bill.10 They thereafter filed a complaint for collection of sum of money against petitioner in the MeTC on January 8, 2003.11 In its answer dated January 24, 2003, petitioner maintained that it had not yet denied respondents' claim as it was still awaiting Dr. Saniel's report. In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that: This is in response to your letter dated February 13, 2003. [Respondent] Neomi T. Olivares called by phone on January 29, 2003. She stated that she is invoking patient-physician confidentiality. That she no longer has any relationship with [petitioner]. And that I should not release any medical information concerning her neurologic status to anyone without her approval. Hence, the same day I instructed my secretary to inform your office thru Ms. Bernie regarding [respondent's] wishes. In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack of cause of action. It held: xxx the best person to determine whether or not the stroke she suffered was not caused by "preexisting conditions" is her attending physician Dr. Saniel who treated her and conducted the test during her confinement. xxx But since the evidence on record reveals that it was no less than [respondent Neomi] herself who prevented her attending physician from issuing the required certification, petitioner cannot be faulted from suspending payment of her claim, for until and unless it can be shown from the

findings made by her attending physician that the stroke she suffered was not due to pre-existing conditions could she demand entitlement to the benefits of her policy.13 On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling of the MeTC and ordered petitioner to pay respondents the following amounts: (1) P34,217.20 representing the medical bill in Medical City and P1,000 as reimbursement for consultation fees, with legal interest from the filing of the complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit.14 The RTC held that it was the burden of petitioner to prove that the stroke of respondent Neomi was excluded from the coverage of the health care program for being caused by a pre-existing condition. It was not able to discharge that burden.15 Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules of Court in the CA. In a decision promulgated on July 29, 2005, the CA affirmed the decision of the RTC. It denied reconsideration in a resolution promulgated on September 21, 2005. Hence this petition which raises the following issues: (1) whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing condition and therefore was excluded from the coverage of the health care agreement and (2) whether it was liable for moral and exemplary damages and attorney's fees. The health care agreement defined a "pre-existing condition" as: x x x a disability which existed before the commencement date of membership whose natural history can be clinically determined, whether or not the Member was aware of such illness or condition. Such conditions also include disabilities existing prior to reinstatement date in the case of lapse of an Agreement. Notwithstanding, the following disabilities but not to the exclusion of others are considered pre-existing conditions including their complications when occurring during the first year of a Members coverage: I. Tumor of Internal Organs II. Hemorrhoids/Anal Fistula III. Diseased tonsils and sinus conditions requiring surgery IV. Cataract/Glaucoma V. Pathological Abnormalities of nasal septum or turbinates VI. Goiter and other thyroid disorders VII. Hernia/Benign prostatic hypertrophy VIII. Endometriosis IX. Asthma/Chronic Obstructive Lung disease X. Epilepsy XI. Scholiosis/Herniated disc and other Spinal column abnormalities XII. Tuberculosis XIII. Cholecysitis XIV. Gastric or Duodenal ulcer XV. Hallux valgus XVI. Hypertension and other Cardiovascular diseases XVII. Calculi XVIII. Tumors of skin, muscular tissue, bone or any form of blood dyscracias XIX. Diabetes Mellitus XX. Collagen/Auto-Immune disease After the Member has been continuously covered for 12 months, this pre-existing provision shall no longer be applicable except for illnesses specifically excluded by an endorsement and made part of this Agreement.16 Under this provision, disabilities which existed before the commencement of the agreement are excluded from its coverage if they become manifest within one year from its effectivity. Stated otherwise, petitioner is not liable for pre-existing conditions if they occur within one year from the time the agreement takes effect. Petitioner argues that respondents prevented Dr. Saniel from submitting his report regarding the medical condition of Neomi. Hence, it contends that the presumption that evidence willfully suppressed would be adverse if produced should apply in its favor.17 Respondents counter that the burden was on petitioner to prove that Neomi's stroke was excluded from the coverage of their agreement because it was due to a pre-existing condition. It failed to prove this.18 We agree with respondents.

In Philamcare Health Systems, Inc. v. CA,19 we ruled that a health care agreement is in the nature of a non-life insurance.20 It is an established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally applicable to health care agreements.21 Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a preexisting condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on her invocation of the doctor-patient privilege. This was a disputable presumption at best. Section 3 (e), Rule 131 of the Rules of Court states: Sec. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: (e) That evidence willfully suppressed would be adverse if produced. Suffice it to say that this presumption does not apply if (a) the evidence is at the disposal of both parties; (b) the suppression was not willful; (c) it is merely corroborative or cumulative and (d) the suppression is an exercise of a privilege.22 Here, respondents' refusal to present or allow the presentation of Dr. Saniel's report was justified. It was privileged communication between physician and patient. Furthermore, as already stated, limitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy"23 and "care" and with a "jaundiced eye."24 Since petitioner had the burden of proving exception to liability, it should have made its own assessment of whether respondent Neomi had a pre-existing condition when it failed to obtain the attending physician's report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere reliance on a disputable presumption does not meet the strict standard required under our jurisprudence. Next, petitioner argues that it should not be held liable for moral and exemplary damages, and attorney's fees since it did not act in bad faith in denying respondent Neomi's claim. It insists that it waited in good faith for Dr. Saniel's report and that, based on general medical findings, it had reasonable ground to believe that her stroke was due to a pre-existing condition, considering it occurred only 38 days after the coverage took effect.25 We disagree. The RTC and CA found that there was a factual basis for the damages adjudged against petitioner. They found that it was guilty of bad faith in denying a claim based merely on its own perception that there was a pre-existing condition: [Respondents] have sufficiently shown that [they] were forced to engage in a dispute with [petitioner] over a legitimate claim while [respondent Neomi was] still experiencing the effects of a stroke and forced to pay for her medical bills during and after her hospitalization despite being covered by [petitioners] health care program, thereby suffering in the process extreme mental anguish, shock, serious anxiety and great stress. [They] have shown that because of the refusal of [petitioner] to issue a letter of authorization and to pay [respondent Neomi's] hospital bills, [they had] to engage the services of counsel for a fee of P20,000.00. Finally, the refusal of petitioner to pay respondent Neomi's bills smacks of bad faith, as its refusal [was] merely based on its own perception that a stroke is a preexisting condition. (emphasis supplied) This is a factual matter binding and conclusive on this Court.26 We see no reason to disturb these findings. WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 84163 are AFFIRMED.

Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002]

Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: "Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). " The application was approved for a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Health Care Agreement P010194. Under the agreement, Trinos' husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from 1 March 1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, Trinos paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, Trinos brought her husband home again. In the morning of 13 April 1990, Ernani had fever and was feeling very weak. Trinos was constrained to bring him back to the Chinese

General Hospital where he died on the same day. On 24 July 1990, Trinos instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 53795). She asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial, the lower court ruled against Philamcare and Reverente, ordering them to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trinos; and the attorney's fees of P20,000.00, plus costs of suit. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved Reverente. Philamcare's motion for reconsideration was denied. Hence, Philamcare brought the petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code does not apply. Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an insurance contract. Held [1]: YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: (1) The insured has an insurable interest; (2) The insured is subject to a risk of loss by the happening of the designated peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and (5) In consideration of the insurer's promise, the insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides that "Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends." Herein, the insurable interest of Trinos' husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are called for, without intent to deceive will avoid a policy when they were untrue. Held [2]: NO. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, Philamcare is liable for claims made under the contract. Having assumed a responsibility under the agreement, Philamcare is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Issue [3]: Whether rescission must be exercised before commencement of an action on the contract. Held [3]: YES. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. Herein, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: (1) Prior notice of

cancellation to insured; (2) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (4) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. Issue [4]: Whether the membership of the late Trinos is now incontestable. Held [4]: YES. Under the title Claim procedures of expenses, Philamcare had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.

G.R. No. 156571, July 09, 2008] INTRA-STRATA ASSURANCE CORPORATION AND PHILIPPINE HOME ASSURANCE CORPORATION, PETITIONERS, VS. REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE BUREAU OF CUSTOMS, RESPONDENT. DECISION BRION, J.: Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Intra-Strata Assurance Corporation (Intra-Strata) and Philippine Home Assurance Corporation (PhilHome), collectively referred to as "petitioners." The petition seeks to set aside the decision dated November 26, 2002 of the Court of Appeals[1] (CA) that in turn affirmed the ruling of the Regional Trial Court (RTC), Branch 20, Manila in Civil Case No. 8315071. [2] In its ruling, the RTC found the petitioners liable as sureties for the customs duties, internal revenue taxes, and other charges due on the importations made by the importer, Grand Textile Manufacturing Corporation (Grand Textile). [3] BACKGROUND FACTS Grand Textile is a local manufacturing corporation. In 1974, it imported from different countries various articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse No. 462. As computed by the Bureau of Customs, the customs duties, internal revenue taxes, and other charges due on the importations amounted to P2,363,147.00. To secure the payment of these obligations pursuant to Section 1904 of the Tariff and Customs Code ( Code),[4] Intra- Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These bonds, the terms of which are fully quoted below, commonly provide that the goods shall be withdrawn from the bonded warehouse "on payment of the legal customs duties, internal revenue, and other charges to which they shall then be subject."[5] Without payment of the taxes, customs duties, and charges due and for purposes of domestic consumption, Grand Textile withdrew the imported goods from storage.[6] The Bureau of Customs demanded payment of the amounts due from Grand Textile as importer, and from Intra-Strata and PhilHome as sureties. All three failed to pay. The government responded on January 14, 1983 by filing a collection suit against the parties with the RTC of Manila. LOWER COURT DECISIONS After hearing, the RTC rendered its January 4, 1995 decision finding Grand Textile (as importer) and the petitioners (as sureties) liable for the taxes, duties, and charges due on the imported articles. The dispositive portion of this decision states: [7] WHEREFORE, premises considered, the Court RESOLVES directing: (1)

the defendant Grand Textile Manufacturing Corporation to pay plaintiff, the sum of P2,363,174.00, plus interests at the legal rate from the filing of the Complaint until fully paid; (2) the defendant Intra-Strata Assurance Corporation to pay plaintiff, jointly and severally, with defendant Grand, the sum of P2,319,211.00 plus interest from the filing of the Complaint until fully paid; and the defendant Philippine Home Assurance Corporation to pay plaintiff the sum of P43,936.00 plus interests to be computed from the filing of the Complaint until fully paid; (3) the forfeiture of all the General Warehousing Bonds executed by Intra- Strata and PhilHome; and (4) all the defendants to pay the costs of suit. SO ORDERED. The CA fully affirmed the RTC decision in its decision dated November 26, 2002. From this CA decision, the petitioners now come before this Court through a petition for review on certiorari alleging that the CA decided the presented legal questions in a way not in accord with the law and with the applicable jurisprudence. ASSIGNED ERRORS The petitioners present the following points as the conclusions the CA should have made: that they were released from their obligations under their bonds when Grand Textile withdrew the imported goods without payment of taxes, duties, and other charges; and that their non-involvement in the active handling of the warehoused items from the time they were stored up to their withdrawals substantially increased the risks they assumed under the bonds they issued, thereby releasing them from liabilities under these bonds.[8] In their arguments, they essentially pose the legal issue of whether the withdrawal of the stored goods, wares, and merchandise - without notice to them as sureties - released them from any liability for the duties, taxes, and charges they committed to pay under the bonds they issued. They additionally posit that they should be released from any liability because the Bureau of Customs, through the fault or negligence of its employees, allowed the withdrawal of the goods without the payment of the duties, taxes, and other charges due. The respondent, through the Solicitor General, maintains the opposite view. THE COURT'S RULING We find no merit in the petition and consequently affirm the CA decision. Nature of the Surety's Obligations Section 175 of the Insurance Code defines a contract of suretyship as an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of another party called the obligee, and includes among its various species bonds such as those issued pursuant to Section 1904 of the Code.[9] Significantly, "pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship."[10] By its very nature under the terms of the laws regulating suretyship, the liability of the surety is joint and several but limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.[11] The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play - a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the

original promissor although he possesses no direct or personal interest over the latter's obligations and does not receive any benefit therefrom.[12] The Bonds Under Consideration That the bonds under consideration are surety bonds (and hence are governed by the above laws and rules) is not disputed; the petitioners merely assert that they should not be liable for the reasons summarized above. Two elements, both affecting the suretyship agreement, are material in the issues the petitioners pose. The first is the effect of the law on the suretyship agreement; the terms of the suretyship agreement constitute the second. A feature of the petitioners' bonds, not stated expressly in the bonds themselves but one that is true in every contract, is that applicable laws form part of and are read into the contract without need for any express reference. This feature proceeds from Article 1306 of the Civil Code pursuant to which we had occasion to rule: It is to be recognized that a large degree of autonomy is accorded the contracting parties. Not that it is unfettered. They may, according to Article 1306 of the Civil Code "establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy." The law thus sets limits. It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied therein. The contracting parties need not repeat them. They do not even have to be referred to. Every contract thus contains not only what has been explicitly stipulated but also the statutory provisions that have any bearing on the matter."[13] Two of the applicable laws, principally pertaining to the importer, are Sections 101 and 1204 of the Tariff and Customs Code which provide that: Sec 101. Imported Items Subject to Duty - All articles when imported from any foreign country into the Philippines shall be subject to duty upon such importation even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in clear laws. xxxx Sec. 1204. Liability of Importer for Duties - Unless relieved by laws or regulations, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees, and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced which such articles are in custody or subject to the control of the government. The obligation to pay, principally by the importer, is shared by the latter with a willing third party under a suretyship agreement under Section 1904 of the Code which itself provides: Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond - After articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other charges shall have been determined, the Collector shall require from the importer, an irrevocable domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, and other charges conditioned upon the withdrawal of the articles within the period prescribed by Section 1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then be subject and upon compliance with all legal requirements regarding their importation. We point these out to stress the legal basis for the submission of the petitioners' bonds and the conditions attaching to these bonds. As heretofore mentioned, there is, firstly, a principal obligation belonging to the importer-obligor as provided under Section 101; secondly, there is an accessory obligation, assumed by the sureties pursuant to Section 1904 which, by the nature of a surety agreement, directly, primarily, and equally bind them to the obligee to pay the obligor's obligation. The second element to consider in a suretyship agreement relates to the terms of the bonds themselves, under the rule that the terms of the suretyship are determined by the suretyship contract itself.[14] The General Warehousing Bond [15] that is at the core of the present dispute provides: KNOW ALL MEN BY THESE PRESENTS: That I/we GRAND TEXTILE MANUFACTURING CORPORATION - Km. 21, Marilao, Bulacan, as Principal, and PHILIPPINE HOME ASSURANCE as the latter being a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, are held and firmly bound unto

the Republic of the Philippines, in the sum of PESOS TWO MILLION ONLY (P2,000,000.00), Philippine Currency, to be paid to the Republic of the Philippines, for the payment whereof, we bind ourselves, our heirs, executors, administrators and assigns, jointly and severally, firmly by these presents: WHEREAS, the above-bounden Principal will from time to time make application to make entry for storing in customs-internal revenue bonded warehouse certain goods, wares, and merchandise, subject to customs duties and special import tax or internal revenue taxes or both; WHEREAS, the above principal in making application for storing merchandise in customs-internal revenue bonded warehouse as above stated, will file this in his name as principal, which bond shall be approved by the Collector of Customs or his Deputy; and WHEREAS, the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond. NOW THEREFORE, the condition of this obligation is such that if within six (6) months from the date of arrival of the importing vessel in any case, the goods, wares, and merchandise shall be regularly and lawfully withdrawn from public stores or bonded warehouse on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall then be subject; or if at any time within six (6) months from the said date of arrival, or within nine (9) months if the time is extended for a period of three (3) months, as provided in Section 1903 of the Tariff and Customs Code of the Philippines, said importation shall be so withdrawn for consumption, then the above obligation shall be void, otherwise, to remain in full force and effect. Obligations hereunder may only be accepted during the calendar year 1974 and the right to reserve by the corresponding Collector of Customs to refuse to accept further liabilities under this general bond, whenever, in his opinion, conditions warrant doing so. IN WITNESS WHEREOF, we have signed our names and affixed our seals on this 20th day of September, 1974 at Makati, Rizal, Philippines. Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the bonds shall subsist - that is, "shall remain in full force and effect" - unless the imported articles are "regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be subject...." Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand Textile; it was allowed to warehouse the imported articles without need for prior payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties' liability, except to signal both the principal's default and the elevation to a due and demandable status of the sureties' solidary obligation to pay. Under the bonds' plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges? We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous.[16] We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is - on the part of the importer , to pay the customs duties, taxes, and charges due on the importation, and on the part of the sureties, to be solidarily bound to the payment of the amounts due on the imported goods upon their withdrawal or upon expiration of the given terms. The petitioners' lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditor-obligee in the importation transaction is the payment by the importer-obligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the

sureties who are there as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties' solidary obligation that has become due and demandable. This matter is further and more fully explored below. The Need for Notice to Bondsmen To support the conclusion that they should be released from the bonds they issued, the petitioners argue that upon the issuance and acceptance of the bonds, they became direct parties to the bonded transaction entitled to participate and actively intervene, as sureties, in the handling of the imported articles; that, as sureties, they are entitled to notice of any act of the bond obligee and of the bond principal that would affect the risks secured by the bond; and that otherwise, the door becomes wide open for possible fraudulent conspiracy between the bond obligee and principal to defraud the surety. [17] In taking these positions, the petitioners appear to misconstrue the nature of a surety relationship, particularly the fact that two types of relationships are involved, that is, the underlying principal relationship between the creditor (government) and the debtor (importer), and the accessory surety relationship whereby the surety binds itself, for a consideration paid by the debtor, to be jointly and solidarily liable to the creditor for the debtor's default. The creditor in this latter relationship accepts the surety's solidary undertaking to pay if the debtor does not pay.[18] Such acceptance, however, does not change in any material way the creditor's relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. The contract of surety simply gives rise to an obligation on the part of the surety in relation with the creditor and is a oneway relationship for the benefit of the latter.[19] In other words, the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtor's default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties' undertaking.[20] Under these terms, the surety is not entitled as a rule to a separate notice of default,[21] nor to the benefit of excussion,[22] and may be sued separately or together with the principal debtor.[23] The words of this Court in Palmares v. CA[24] are worth noting: Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. Significantly, nowhere in the petitioners' bonds does it state that prior notice is required to fix the sureties' liabilities. Without such express requirement, the creditor's right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filing of the collection suit was sufficient notice to the sureties of their principal's default. The petitioners' reliance on Visayan Surety and Insurance Corporation v. Pascual[25] and Aguasin v. Velasquez[26] does not appear to us to be well taken as these cases do not squarely apply to the present case. These cases relate to bonds issued as a requirement for the issuance of writs of replevin. The Rules of Court expressly require that before damages can be claimed against such bonds, notice must be given to the sureties to bind them to the award of damages. No such requirement is evident in this case as neither the Tariff and Customs Code nor the issued bonds require prior notice to sureties. The petitioners' argument focusing on the additional risks they incur if they cannot intervene in the handling of the warehoused articles must perforce fail in light of what we have said above regarding the nature of their obligation as sureties and the relationships among the parties where a surety agreement exists. We add that the petitioners have effectively waived as against the creditor (the government) any such claim in light of the provision of the bond that "the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond."[27] Any such claim including those arising from the withdrawal of the warehoused articles without the payment of the requisite duties, taxes and charges is for the principal and the sureties to thresh out between or among themselves. Government is Not Bound by Estoppel

As its final point, the petitioners argue that they cannot be held liable for the unpaid customs duties, taxes, and other charges because it is the Bureau of Customs' duty to ensure that the duties and taxes are paid before the imported goods are released from its custody and they cannot be made to pay for the error or negligence of the Bureau's employees in authorizing the unlawful and irregular withdrawal of the goods. It has long been a settled rule that the government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or any of its agencies arising from unauthorized or illegal acts of public officers.[28] This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents.[29] In CIR v. CTA,[30] we pointedly said: It is axiomatic that the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary hindrance or delay. We see no reason to deviate from this rule and we shall not do so now. WHEREFORE, premises considered, we hereby DENY the petition and AFFIRM the Decision of the Court of Appeals. Costs against the petitioners. SO ORDERED.

G.R. No. 171406 April 4, 2011 ASIAN TERMINALS, INC., Petitioner, vs. MALAYAN INSURANCE, CO., INC., Respondent. DECISION DEL CASTILLO, J.: Once the insurer pays the insured, equity demands reimbursement as no one should benefit at the expense of another. This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the July 14, 2005 Decision2 and the February 14, 2006 Resolution3 of the Court of Appeals (CA) in CA G.R. CV No. 61798. Factual Antecedents On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) from China to Manila.4 The shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party.5 On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila,6 the stevedores of petitioner Asian Terminals, Inc., a duly registered domestic corporation engaged in providing arrastre

and stevedoring services,7 unloaded the 60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery to the consignee.8 When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in bad order condition.9 On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the consignee.10 On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the contents.11 On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of P643,600.25.12 Ruling of the Regional Trial Court On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a Complaint13 for damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage.14 After the filing of the Answers,15 trial ensued. On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable for the damage/loss sustained by the shipment but absolving the other defendants. The RTC found that the proximate cause of the damage/loss was the negligence of petitioners stevedores who handled the unloading of the cargoes from the vessel.17 The RTC emphasized that despite the admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor Antonio not to use steel hooks in retrieving and picking-up the bags, petitioners stevedores continued to use such tools, which pierced the bags and caused the spillage.18 The RTC, thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles 217619 and 2180 paragraph (4)20 of the Civil Code.21 Hence, the dispositive portion of the Decision reads: WHEREFORE, judgment is rendered ordering defendant Asian Terminal, Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum of P643,600.25 plus interest thereon at legal rate computed from November 20, 1996, the date the Complaint was filed, until the principal obligation is fully paid, and the costs. The complaint of the plaintiff against defendants Inchcape Shipping Services and MEC Customs Brokerage, and the counterclaims of said defendants against the plaintiff are dismissed. SO ORDERED.22 Ruling of the Court of Appeals Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In its July 14, 2005 Decision, the CA agreed with the RTC that the damage/loss was caused by the negligence of petitioners stevedores in handling and storing the subject shipment.24 The CA likewise rejected petitioners assertion that it received the subject shipment in bad order condition as this was belied by Marine Cargo Surveyors Redentor Antonio and Edgar Liceralde, who both testified that the actual counting of bad order bags was done only after all the bags were unloaded from the vessel and that the Turn Over Survey of Bad Order Cargoes (TOSBOC) upon which petitioner anchors its defense was prepared only on November 28, 1995 or after the unloading of the bags was completed.25 Thus, the CA disposed of the appeal as follows: WHEREFORE, premises considered, the appeal is DENIED. The assailed Decision dated June 26, 1998 of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 96-80945 is hereby AFFIRMED in all respects. SO ORDERED.26 Petitioner moved for reconsideration27 but the CA denied the same in a Resolution28 dated February 14, 2006 for lack of merit. Issues Hence, the present recourse, petitioner contending that: 1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID, EXISTING, ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN COURT. 2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND RESPONDENT. 3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS DOCUMENTATIONS WOULD POINT TO THE VESSELS LIABILITY AS THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING DOCUMENTARY EVIDENCE TO PROVE THAT THE DAMAGE IN QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE CUSTODY OF THE VESSEL. 4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT THAT THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE COMPLETION OF THE DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS, CONCLUDING THAT DAMAGE TO THE CARGOES WAS DUE TO THE IMPROPER HANDLING THEREOF BY ATI STEVEDORES.

5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING JUDICIAL NOTICE OF THE CONTRACT FOR CARGO HANDLING SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT PROVISIONS THEREOF AS REGARDS ATIS LIABILITY.29 In sum, the issues are: (1) whether the non-presentation of the insurance contract or policy is fatal to respondents cause of action; (2) whether the proximate cause of the damage/loss to the shipment was the negligence of petitioners stevedores; and (3) whether the court can take judicial notice of the Management Contract between petitioner and the Philippine Ports Authority (PPA) in determining petitioners liability. Petitioners Arguments Petitioner contends that respondent has no cause of action because it failed to present the insurance contract or policy covering the subject shipment.30 Petitioner argues that the Subrogation Receipt presented by respondent is not sufficient to prove that the subject shipment was insured and that respondent was validly subrogated to the rights of the consignee.31 Thus, petitioner submits that without proof of a valid subrogation, respondent is not entitled to any reimbursement.32 Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the proximate cause of the damage/loss to the shipment was the negligence of petitioners stevedores.33 Petitioner avers that such finding is contrary to the documentary evidence, i.e., the TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report of Survey.34 According to petitioner, these documents prove that it received the subject shipment in bad order condition and that no additional damage was sustained by the subject shipment under its custody.35Petitioner asserts that although the TOSBOC was prepared only after all the bags were unloaded by petitioners stevedores, this does not mean that the damage/loss was caused by its stevedores.36 Petitioner also claims that the amount of damages should not be more than P5,000.00, pursuant to its Management Contract for cargo handling services with the PPA.37 Petitioner contends that the CA should have taken judicial notice of the said contract since it is an official act of an executive department subject to judicial cognizance.38 Respondents Arguments Respondent, on the other hand, argues that the non-presentation of the insurance contract or policy was not raised in the trial court. Thus, it cannot be raised for the first time on appeal.39 Respondent likewise contends that under prevailing jurisprudence, presentation of the insurance policy is not indispensable.40 Moreover, with or without the insurance contract or policy, respondent claims that it should be allowed to recover under Article 123641 of the Civil Code.42 Respondent further avers that "the right of subrogation has its roots in equity - it is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay."43 Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss sustained by the subject shipment was caused by the negligent acts of petitioners stevedores.44 Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be disturbed.45 In fact, under Section 146 of Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari.47 As to the Management Contract for cargo handling services, respondent contends that this is outside the operation of judicial notice.48 And even if it is not, petitioners liability cannot be limited by it since it is a contract of adhesion.49 Our Ruling The petition is bereft of merit. Non-presentation of the insurance contract or policy is not fatal in the instant case Petitioner claims that respondents non-presentation of the insurance contract or policy between the respondent and the consignee is fatal to its cause of action. We do not agree. First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be resolved during the pre-trial.50 As we have said, "the determination of issues during the pre-trial conference bars the consideration of other questions, whether during trial or on appeal."51 Thus, "[t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial because they themselves agreed to the same."52 Neither was this issue raised on appeal.53 Basic is the rule that "issues or grounds not raised below cannot be resolved on review by the Supreme Court, for to allow the parties to raise new issues is antithetical to the sporting idea of fair play, justice and due process."54 Besides, non-presentation of the insurance contract or policy is not necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of Appeals,56 we ruled that: Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount

paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.57 (Emphasis supplied.) In International Container Terminal Services, Inc. v. FGU Insurance Corporation,58 we used the same line of reasoning in upholding the Decision of the CA finding the arrastre contractor liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance contract or policy. We explained: Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home Insurance Corporation v. Court of Appeals. However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioners vessel, unlike in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo occurred, such that the insurer should be liable for it. As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioners custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.59 Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner objected to the admission of the Subrogation Receipt in its Comment to respondents formal offer of evidence on the ground that respondent failed to present the insurance contract or policy,60 a perusal of petitioners Answer61and Pre-Trial Brief62 shows that petitioner never questioned respondents right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no reason to present the insurance contract or policy as evidence during the trial. Factual findings of the CA, affirming the RTC, are conclusive and binding Petitioners attempt to absolve itself from liability must likewise fail. Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. Thus, it is not our duty "to review, examine, and evaluate or weigh all over again the probative value of the evidence presented,"63 especially where the findings of both the trial court and the appellate court coincide on the matter.64As we have often said, factual findings of the CA affirming those of the RTC are conclusive and binding, except in the following cases: "(1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the [CA] is based on misapprehension of facts; (5) when the [CA], in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (6) when the findings of fact are conclusions without citation of specific evidence on which they are based; (7) when the [CA] manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (8) when the findings of fact of the [CA] are premised on the absence of evidence and are contradicted by the evidence on record."65 None of these are availing in the present case. Both the RTC and the CA found the negligence of petitioners stevedores to be the proximate cause of the damage/loss to the shipment. In disregarding the contention of petitioner that such finding is contrary to the documentary evidence, the CA had this to say:

ATI, however, contends that the finding of the trial court was contrary to the documentary evidence of record, particularly, the Turn Over Survey of Bad Order Cargoes dated November 28, 1995, which was executed prior to the turn-over of the cargo by the carrier to the arrastre operator ATI, and which showed that the shipment already contained 2,702 damaged bags. We are not persuaded. Contrary to ATIs assertion, witness Redentor Antonio, marine cargo surveyor of Inchcape for the vessel Jinlian I which arrived on November 21, 1995 and up to completion of discharging on November 28, 1995, testified thatit was only after all the bags were unloaded from the vessel that the actual counting of bad order bags was made, thus: xxxx The above testimony of Redentor Antonio was corroborated by Edgar Liceralde, marine cargo surveyor connected with SMS Average Surveyors and Adjusters, Inc., the company requested by consignee Chemphil Albright and Wilson Corporation to provide superintendence, report the condition and determine the final outturn of quantity/weight of the subject shipment. x x x xxxx Defendant-appellant ATI, for its part, presented its claim officer as witness who testified that a survey was conducted by the shipping company and ATI before the shipment was turned over to the possession of ATI and that the Turn Over Survey of Bad Order Cargoes was prepared by ATIs Bad Order (BO) Inspector. Considering that the shipment arrived on November 21, 1998 and the unloading operation commenced on said date and was completed on November 26, 1998, while the Turn Over Survey of Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and signed on November 28, 1998by ATIs BO Inspector and co-signed by a representative of the shipping company, the trial courts finding that the damage to the cargoes was due to the improper handling thereof by ATIs stevedores cannot be said to be without substantial support from the records. We thus see no cogent reason to depart from the ruling of the trial court that ATI should be made liable for the 2,702 bags of damaged shipment. Needless to state, it is hornbook doctrine that the assessment of witnesses and their testimonies is a matter best undertaken by the trial court, which had the opportunity to observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point are accorded great respect and will not be reversed on appeal, unless it overlooked substantial facts and circumstances which, if considered, would materially affect the result of the case. We also find ATI liable for the additional 179 damaged bags discovered upon delivery of the shipment at the consignees warehouse in Pasig. The final Report of Survey executed by SMS Average Surveyors & Adjusters, Inc., and independent surveyor hired by the consignee, shows that the subject shipment incurred a total of 2881 damaged bags. The Report states that the withdrawal and delivery of the shipment took about ninety-five (95) trips from November 29, 1995 to December 28, 1995 and it was upon completion of the delivery to consignees warehouse where the final count of 2881 damaged bags was made. The damage consisted of torn/bad order condition of the bags due to spillages and caked/hardened portions. We agree with the trial court that the damage to the shipment was caused by the negligence of ATIs stevedores and for which ATI is liable under Articles 2180 and 2176 of the Civil Code. The proximate cause of the damage (i.e., torn bags, spillage of contents and caked/hardened portions of the contents) was the improper handling of the cargoes by ATIs stevedores, x x x xxxx ATI has not satisfactorily rebutted plaintiff-appellees evidence on the negligence of ATIs stevedores in the handling and safekeeping of the cargoes. x x x xxxx We find no reason to disagree with the trial courts conclusion. Indeed, from the nature of the [damage] caused to the shipment, i.e., torn bags, spillage of contents and hardened or caked portions of the contents, it is not difficult to see that the damage caused was due to the negligence of ATIs stevedores who used steel hooks to retrieve the bags from the higher portions of the piles thereby piercing the bags and spilling their contents, and who piled the bags in the open storage area of ATI with insufficient cover thereby exposing them to the elements and [causing] the contents to cake or harden.66 Clearly, the finding of negligence on the part of petitioners stevedores is supported by both testimonial and documentary evidence. Hence, we see no reason to disturb the same. Judicial notice does not apply Finally, petitioner implores us to take judicial notice of Section 7.01,67 Article VII of the Management Contract for cargo handling services it entered with the PPA, which limits petitioners liability to P5,000.00 per package. Unfortunately for the petitioner, it cannot avail of judicial notice. Sections 1 and 2 of Rule 129 of the Rules of Court provide that: SECTION 1. Judicial notice, when mandatory. A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the

legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of time, and the geographical divisions.1avvphi1 SEC. 2. Judicial notice, when discretionary. A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration or ought to be known to judges because of their judicial functions. The Management Contract entered into by petitioner and the PPA is clearly not among the matters which the courts can take judicial notice of. It cannot be considered an official act of the executive department. The PPA, which was created by virtue of Presidential Decree No. 857, as amended,68 is a government-owned and controlled corporation in charge of administering the ports in the country.69 Obviously, the PPA was only performing a proprietary function when it entered into a Management Contract with petitioner. As such, judicial notice cannot be applied. WHEREFORE, the petition is hereby DENIED. The assailed July 14, 2005 Decision and the February 14, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED. SO ORDERED.

Geagonia vs. Court of Appeals [GR 114427, 6 February 1995] First Division, Davide Jr. (J): 4 concur Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business." Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the coinsurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00 (on credit); totalling P392,130.50. The policy contained the following condition, that "the insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim under the policy. On 28 December 1990, Country Bankers denied the claim because it found that at the time of the loss Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. COINSURANCE DECLARED: P100,000. Phils. First CEB/F-24758" The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in Country Bankers' policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the Insurance Commission found that Geagonia did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he came to know of the PFIC policies only when he filed his claim with Country Bankers

and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission ordered Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20 August 1993, Country Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance Commission because it found that Geagonia knew of the existence of the two other policies issued by the PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review on certiorari. Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to deny Geagonia from recovering on the policy. Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. The fire insurance policies issued by the PFIC name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause, not a standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject policy applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate; the two policies of the PFIC do not cover the same interest as that covered by the policy of Country Bankers, no double insurance exists. The nondisclosure then of the former policies was not fatal to Geagonia's right to recover on Country Bankers' policy. Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void. Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be effected covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in Country Bankers' policy F-14622 does not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." By stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. Great Pacific Life Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999] Second Division, Quisumbing (J): 3 concur, 1 on official leave

Facts: A contract of group life insurance was executed between Great Pacific Life Assurance Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. On 11 November 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows: "7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment? Answer: No. If so give details ___________. 8. Are you now, to the best of your knowledge, in good health? Answer: [ x ] Yes [ ] No." On 15 November 1983, Grepalife issued Certificate B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to P86,200.00. On 6 August 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on 15 November 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim. On 20 October 1986, the widow of the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. On 22 February 1988, the trial court rendered a decision in favor of the widow and against Grepalife. On 17 May 1993, the Court of Appeals sustained the trial courts decision. Grepalife filed the petition for review. Issue: Whether Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death, and thus concealment can be interposed by Grepalife as a defense to annul the insurance contract. Held: Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. Grepalife merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widows declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay, but as part of res gestae. On the contrary, the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital confinement. Dr. Leuterios death certificate stated that hypertension was only "the possible cause of death." The widows statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by the trial court as hearsay. The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, Grepalife had not proven nor produced any witness who could attest to Dr. Leuterios medical history. Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. Herein, Grepalife failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. Rizal Commercial Banking Corporation (RCBC) vs. Court of Appeals [GR 128833, 20 April 1998]; also RCBC vs. Court of Appeals [GR 128834] Second Division, Melo (J): 4 concur Facts: Goyu & Sons, Inc. (Goyu) applied for credit facilities and accommodations with Rizal Commercial Banking Corporation (RCBC) at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended Goyu's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon Goyu's application and Uy's and Lao's recommendation, RCBC's executive committee increased Goyu's credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, Goyu executed two real estate mortgages and two chattel mortgages in

favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, Goyu committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. Goyu obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where Goyu obtained the Malayan insurance policies, issued 9 endorsements in favor of RCBC seemingly upon instructions of Goyu. On 27 April 1992, one of Goyu's factory buildings in Valenzuela was gutted by fire. Consequently, Goyu submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of Goyu alleging better rights to the proceeds than the insured. Goyu filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case 93-65442. RCBC, one of Goyu's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO denied Goyu's claims. In an interlocutory order dated 12 October 1993, the Regional Trial Court of Manila (Branch 3), confirmed that Goyu's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the 10 insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on 7 January 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC. In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75. After trial, Branch 3 of the Manila RTC rendered judgment in a favor of Goyu, ordering Malayan to pay Goyu its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with the Court; damages by way of interest for the duration of the delay since 27 July 1992 (90 days after Malayan's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the amounts of (1) P50,000,000.00 from 27 July 1992 up to the time said amount was deposited with the Court on 7 January 1994; and (2) P24,040,518.58 from 17 July 1992 up to the time when the writs of attachments were received by Malayan. The court also ordered RCBC to pay Goyu actual and compensatory damages in the amount of P2,000,000.00, and both Malayan and RCBC to solidarily pay Goyu (1) P1,000,000.00 as exemplary damages; (2) P1,000,000.00 as, and for, attorneys fees; and (3) Costs of suit. The Court, on the Counterclaim of RCBC, ordered Goyu to pay its loan obligations with RCBC in the amount of P68,785,069.04, as of 27 April 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties). From this judgment, all parties interposed their respective appeals. Goyu was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals partly granted Goyu's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities. The appellate court modified the decision by ordering Malayan to pay Goyu its fire loss claim in the total amount of P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing 27 July 1992 until the time Goyu receives the said amount at the rate of 37% per annum which is twice the ceiling prescribed by the Monetary Board; ordering RCBC to pay Goyu actual and compensatory damages in the amount of P5,000,000.00; and Malayan and RCBC, Uy Chun Bing and Eli Lao to pay Goyu solidarily in the amounts of (1) P1,500,000.00 as exemplary damages; and (2) P1,500,000.00 as and for attorney's fees. The Court, on RCBC's Counterclaim, ordered Goyuto pay its loan obligation with RCBC in the amount of P68,785.069.04 as of 27 April 1992 without any interest, surcharges and penalties. RCBC and Malayan appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated. Issue [1]: Whether RCBC, as mortgagee, has any right over the insurance policies taken by Goyu, the mortgagor, in case of the occurrence of loss. Held [1]: YES. It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that Goyu could insure the mortgaged property for its own exclusive benefit. Herein, although it appears that Goyu obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that Goyu voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by Goyu itself. Had it not been for Goyu, Alchester would not have known of Goyu's intention of obtaining insurance coverage in compliance with

its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by Goyu. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. Such reliance is justified under the circumstances of the case. Goyu failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, Goyu continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for Goyu to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of Goyu's inaction in this case, Goyu is at the very least estopped from assailing their operative effects. To permit Goyu to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. Issue [2]: Whether Goyu can insist that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. Held [2]: NO. Goyu cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: (1) It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and Goyu in consideration of and for securing Goyu's credit facilities from RCBC. The mortgage contracts contained common provisions whereby Goyu, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. (2) Goyu voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. (3) Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to Goyu, MICO and RCBC. Goyu did not assail, until of late, the validity of said endorsements. (4) Goyu continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by Goyu to cover the mortgaged properties. The fact that upon receiving its copies of the endorsement documents prepared by Alchester, Goyu, despite the absence written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities and Goyu continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by Goyu. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended. Moreover, the law's evident intention to protect the interests of the mortgagee upon the mortgaged property is expressed in Article 2127 of the Civil Code. The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by Goyu itself, these 8 policies can not be attached by Goyu's other creditors up to the extent of the Goyu's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of Goyu's obligation with RCBC, the interest of Goyu in the subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of Goyu, like Alfredo Sebastian in GR 128834, which may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by Goyu's other creditors. To the extent of Goyu's outstanding obligation with RCBC, all the rest of the other insurance policies which were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of Goyu.

UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Masagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Masagana. Masagana seasonably filed a motion for the reconsideration of the adverse verdict. Issue: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen. Held: YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid." A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision that "While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted." By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPBGen, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such practice. Estoppel then is the fifth exception to Section 77. HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,

- versus -

EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

G.R. No. 181132

Present:

YNARES-SANTIAGO, J., Chairperson, CARPIO,* CORONA,** NACHURA, and PERALTA, JJ.

Promulgated:

June 5, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

This is a petition[1] for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution[2] dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners appeal for lack of jurisdiction.

The case stems from a petition[3] filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular)[4] and Great Pacific Life Assurance Corporation (Grepalife);[5] (3) the illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angeliewere entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total amount of P320,000.00 as actual litigation expenses and attorneys fees.

In answer,[6] Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessas share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loretos estate had been filed nor had the respective shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer[7] with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal whether the complaint itself was proper or not and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 752[8] and 772[9] of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife.

SO ORDERED.[10]

In so ruling, the trial court ratiocinated thus

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a

donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:]

With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x.

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the declaration for the nullity of a void donation falls within the general jurisdiction of this Court.[11]

Insular[12] and Grepalife[13] filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular further averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be better threshed out during trial.

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.

SO ORDERED.[14]

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loretos illegitimate children should be reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loretos misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial courts Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court engage in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the dismissal on allegations of the defendants in their answer which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?[15]

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children with Loreto but, instead,

awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial courts finding that the petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads

SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:

xxxx

(g)

That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another.[16] A complaint states a cause of action when it contains the three (3) elements of a cause of action(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.[17]

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

1. 2. 3. 4.

the falsity of the allegations is subject to judicial notice; such allegations are legally impossible; the allegations refer to facts which are inadmissible in evidence; by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case.[18]

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a concubine of Loreto and a

suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Evas children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance Code,[19] Evas share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loretos illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.[20] The exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.[21]

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in Loretos insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,[22] the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary,[23] or when the designated beneficiary is disqualified by law to receive the proceeds, [24] that the insurance policy proceeds shall redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place.[25]

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. G.R. No. 128833 April 20, 1998 RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, Petitioners, vs. COURT OF APPEALS and GOYU & SONS, INC., Respondents. G.R. No. 128834 April 20, 1998 RIZAL COMMERCIAL BANKING CORPORATION, Petitioners, vs. COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, Respondents.

G.R. No. 128866 April 20, 1998 MALAYAN INSURANCE INC., Petitioners, vs. GOYU & SONS, INC. respondent. MELO, J.: The issue relevant to the herein three consolidated petitions revolve around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance Company, Inc. (MICO) in connection with the mortgage contracts entered into by and between Rizal Commercial Banking Corporation (RCBC) and GOYU. The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus 37% interest per annum commending July 27, 1992. RCBC was ordered to pay actual and compensatory damages in the amount of P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed at P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC and MICO appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated. The undisputed facts may be summarized as follows: GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon GOYU's application and Uy's and Lao's recommendation, RCBC's executive committee increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance polices to RCBC. GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan"). On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds than the insured. GOYU filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now subject of the present G.R. No. 128833 and 128866. RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied GOYU's claims. In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the ten insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC. In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit "22-Malayan"). After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the latter as follows:

1. For defendant Malayan Insurance Co., Inc.: a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with this Court; b. To pay the plaintiff damages by was of interest for the duration of the delay since July 27, 1992 (ninety days after defendant insurer's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the following amounts: 1) P50,000,000.00 - from July 27, 1992 up to the time said amount was deposited with this Court on January 7, 1994; 2) P24,040,518.58 - from July 27, 1992 up to the time when the writs of attachments were received by defendant Malayan; 2. For defendant Rizal Commercial Banking Corporation: a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00; 3. For both defendants Malayan and RCBC: a. To pay the plaintiff, jointly and severally, the following amounts: 1) P1,000,000.00 as exemplary damages; 2) P1,000,000.00 as, and for, attorney's fees; 3) Costs of suit. and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C. FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant Malayan, together with all the interest earned thereon. (Record, pp. 478-479.) From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amount awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals party granted GOYU's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities, thusly: WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows: 1. FOR DEFENDANT MALAYAN INSURANCE CO., INC: a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirtyseven (37%) percent per annum which is twice the ceiling prescribed by the Monetary Board. 2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION; a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00. 3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO: a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages; 2. P1,500,000.00 as and for attorney's fees. 4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any interest, surcharges and penalties. The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan Insurance Co., Inc., together with all the interests thereon. (Rollo, p. 200.) RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal of the above dispositions of the Court of Appeals. In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by virtue of the Court of Appeals' resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV46162 (subject of herein G.R. No. 128833). At issue in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian. After a careful reviews of the material facts as found by the two courts below in relation to the pertinent and applicable laws, we find merit in the submission of RCBC and MICO. The several causes of action pursued below by GOYU gave rise to several related issues which are now submitted in the petitions before us. This Court, however, discerns one primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss. As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC. Bases on their stipulations in the mortgage contracts, GOYU was supposed to endorse these insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO's underwriter from whom GOYU obtained the subject insurance policies, prepared the nine endorsements (see Exh. "1-Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and MICO. However, because these endorsements do not bear the signature of any officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective. We do not quite agree. It is settled that a mortgagor and a mortgagee have separated and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public, policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand. (p. 368.) Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYU's nine insurance policies in favor of RCBC. The original copies of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were detained for Alchester's file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the originals of these documents. RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insure against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the insurance polices if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: 1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. 2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. 3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said endorsements. 4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties. This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credits facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the polices were clearly intended.

Moreover, the law's evident intention to protect the interests of the mortgage upon the mortgaged property is expressed in Article 2127 of the Civil Code which states: Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them appear to have been subject of the endorsements prepared and delivered by Alchester for and upon instructions of GOYU as shown below: INSURANCE POLICY PARTICULARS ENDORSEMENT a. Policy Number F-114-07795 None Issue Date March 18, 1992 Expiry Date April 5, 1993 Amount P9,646,224.92 b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan" Issue Date January 18, 1992 Expiry Date February 9, 1993 Amount P4,307,217.54 c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan" Issue Date January 18, 1992 Expiry Date February 15, 1993 Amount P6,603,586.43 d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan" Issue Date January 18, 1992 Expiry Date (not legible) Amount P6,603,586.43 e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan" Issue Date January 18, 1992 Expiry Date February 9, 1993 Amount P9,457,972.76 f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan" Issue Date January 13, 1992 Expiry Date January 13, 1993 Amount P24,750,000.00 g. Policy Number ACIA/F-174-07223 Exhibit "6-Malayan" Issue Date May 29, 1991 Expiry Date June 27, 1992 Amount P6,000,000.00 h. Policy Number CI/F-128-03341 None Issue Date May 3, 1991 Expiry Date May 3, 1992 Amount P10,000,000.00 i. Policy Number F-114-07402 Exhibit "8-Malayan" Issue Date September 16, 1991 Expiry Date October 19, 1992 Amount P32,252,125.20 j. Policy Number F-114-07525 Exhibit "9-Malayan" Issue Date November 20, 1991 Expiry Date December 5, 1992 Amount P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.) Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit "5Malayan", refers to a certain insurance policy number ACIA-F-07066, which is not among the insurance policies involved in the complaint. The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being excessively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up to the extent of the GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of GOYU. This brings us to the next issue to be resolved, which is, the extent of GOYU's outstanding obligation with RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the actual amount of GOYU's liability to RCBC. The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court's exclusion of Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for not only are these dated after the fire, but also because the signatures of either GOYU or any its representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly: . . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in bank terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for the same practice of procedure has always been adopted in its previous dealings with the bank. (Rollo, pp. 181-182.) The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the ordinary course of business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All, Inc., 22 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the burden of proof of showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]). Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go Song Hiap when he answered the queries of the trial court. ATTY. NATIVIDAD Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts stated therein? A: Yes, sir, I received the amount. COURT He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC? WITNESS: Yes, Your Honor, I received all the amounts.

COURT Indicated in the Promissory Notes? WITNESS A. The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor. COURT Q Your mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct? A Yes, Your Honor. (tsn, Jan. 14, 1994, p. 26.) Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory notes as hereinabove quotes, GOYU also offered and admitted to RCBC that is obligation be fixed at P116,301,992.60 as shown in its letter date March 9, 1993, which pertinently reads: We wish to inform you, therefore that we are ready and willing to pay the current past due account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city, respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable insurance companies and other legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as true and correct. (Exhibit BB.) The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes are dated after the fire. It failed to consider that said notes had for their origin transactions consummated prior to the fire. Thus, careful attention must be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU. The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The proceeds of the loan represented by these promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYU's judicial admission of liability in the amount of P116,301,992.60 full force and effect. It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the mortgage property will, nonetheless, have to be applied as payment against GOYU's obligation. But, contrary to the lower courts' findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its aforequoted letter date March 9, 1993, wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993. The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993, to wit: Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60 Broken down as follows: Principal 1 Interest Regular 80,535,946.32 FDU 27,548,025.17 ____________ Total 108,083,971.49 8,218,021.11 2 LESS:

1) Proceeds from Seaboard Eastern Insurance Company 6,095,145.81 2) Proceeds from Equitable Insurance Company 2,756,373.00 3) Payment from foreign department negotiation: 203,584.89 ___________ 9,055,104.70 3 ================ NET AMOUNT as of January 21, 1993 P107,246,887.90 The need for the payment of interest due the principal amount of the obligation, which is the cost of money to RCBC, the primary end and the ultimate reason for RCBC's existence and being, was duly recognized by the trial court when it ruled favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down the factual or legal justification for its ruling, modified the trial court's ruling and ordered GOYU "to pay the principal amount of P68,785,069.04 without any interest, surcharges and penalties" (Rollo, p. 200). It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the payment of additional interest, penalties, and charges, in this manner: Regarding defendant RCBC's commitment not to charge additional interest, penalties and surcharges, the same does not require that it be embodied in a document or some form of writing to be binding and enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and effective than a written one. And the existence of such a verbal agreement has been amply established by the evidence in this case. In any event, regardless of the existence of such verbal agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges and penalties considering the latter's pitiful situation. (Emphasis supplied). (Record, p. 476) The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite express stipulation therefor in a valid agreement, may not equally justify nonpayment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeal's outright deletion of the payment of interest as agreed upon in the respective promissory notes. This constitutes gross error. For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by this Court in Eastern Shipping Lines, Inc. v. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the actual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (pp. 95-97). There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial court in its decision (pp. 470 and 471, Record) such agreed interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted above. On the issue of payment of surcharges and penalties, we partly agree that GOYU's pitiful situation must be taken into account. We do not agree, however, that payment of any amount as surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept the lower courts' finding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but waiver of additional interests, surcharges, and penalties is another. Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides: Art. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case, may be totally just and equitable in another. This provision of law will have to be applied to the established facts of any given case. Given the circumstance under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYU's offer to pay the amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time onward. Given the factual milieu hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU. Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies. Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA. 185 SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a claim should not be inflicted unless the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs.

Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly and in bad faith delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the insurance proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in withholding payment to GOYU. In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance and the other for foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to this argument of GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case having been elevated by RCBC. In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals preempted the resolution of said foreclosure case which is not before it. This is plain reversible error if not grave abuse of discretion. As held in Pea vs. Court of Appeals (245 SCRA 691 [1995]): It should have been enough, nonetheless, for the appellate court to merely set aside the questioned ordered of the trial court for having been issued by the latter with grave abuse of discretion. In likewise enjoining permanently herein petitioner "from entering in and interfering with the use or occupation and enjoyment of petitioner's (now private respondent) residential house and compound," the appellate court in effect, precipitately resolved with finality the case for injunction that was yet to be heard on the merits by the lower court. Elevated to the appellate court, it might be stressed, were mere incidents of the principal case still pending with the trial court. In Municipality of Bian, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have "no jurisdiction in a certiorari proceeding involving an incident in a case to rule on the merits of the main case itself which was not on appeal before it. (pp. 701-702.) Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court, since it has been determined that RCBC has the right to the insurance proceeds, the subject matter of intervention is rendered moot and academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies. It is basic and fundamental that the first mortgagee has superior rights over junior mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]). WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered: 1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of the Manila Trial Court for lack of merit; 2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report of adjuster Toplis & Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of P50,505,594.60 (per O.R. No. 3649285); 3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to Rizal Commercial Banking Corporation; 4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the principal amount of P107,246,887.90, with interest at the respective rates stipulated in each promissory note from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of the amount deposited with the trial court and its earned interest. The total amount due RCBC at the time of the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other stipulated interests and charges until fully paid.

The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived at. Respondent Sebastian's right as attaching creditor must yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first mortgagee. SO ORDERED.